Indo property, the start of something big - CLSA

Sarina Lesmina has just produced another excellent report on Indo property sector. Property sector is becoming more relevant and investable. Plenty of room to grow as sector still trades at 46% disc to NAV. We like Bumi Serpong (BSDE IJ), Bakrieland (ELTY IJ), and Ciputra Surya (CTRS IJ).

Key points from the report:

Good demand to continue. Marketing sales grew a strong 40% YoY to a record high of Rp4.4tn in 1Q11.
Still massive upside. Despite the growth, mortgage is still at 2% of GDP. There is upside to some sales targets budgeted earlier.
Mortgage on the rise and prices are rising. Strong demand to continue with banks offering competitive mortgage products. Rising selling prices of 10-20% across developers.
Remain bullish on landed residential. We see signs of declining condo yield; 52% more supply will hit the market. We see landed residential demand to be more resilient with higher price appreciation as more infra gets developed.
Evidence of business expansion. There is strong evidence of business expansion and FDI as seen in the +150% QoQ in industrial land sales and office space demand.
Retail market to remain competitive. Plenty of room to grow outside city center. Greater Jakarta has 3.5m sqm space, like Singapore, but for 5x more people.
Opportunities and barriers to growth. Lower property tax effective in 2012 should support demand. Indo has one of the highest % growth in GDP per capita vs. regional peers. As land becomes scarce, developers with huge land bank will benefit. Slow infra development is a barrier. Developers are becoming more involved now.
The start of something big. The sector is becoming more relevant and investable. There are now two companies Bumi Serpong (BSDE IJ) and Lippo Karawaci (LPKR IJ) with mkt cap ~US$2bn.
Attractive discount to NAV. Sector at 46% disc to NAV. BSDE remains a proxy; now at 48% disc to NAV vs 30% of closest peers. Bakrieland (ELTY IJ), at below book value is worth watching as more actions unfold. Among smaller names, Ciputra Surya (CTRS IJ) is very attractive at 63% disc to NAV and single digit PE; the best executor among its siblings.